The Assurance Score and Intelligence Scores: How Gumshoe Weighs Every Check

Gumshoe's Assurance Score and Intelligence Scores provide a comprehensive risk assessment of suppliers, enabling procurement teams and accountants to make informed decisions. But how do these scores work, and what do they mean? In this article, we'll delve into the two-bucket weighted model, the treatment of NA checks, and the five-dimensional intelligence scores that underpin Gumshoe's supplier risk assessment.

The Two-Bucket Weighted Model: Core Checks vs Secondary Checks

Gumshoe's Assurance Score is calculated using a two-bucket weighted model, which distinguishes between core checks and secondary checks. Core checks are critical assessments that directly impact the supplier's legitimacy and solvency, such as ABN registration and ASIC company status. Secondary checks, on the other hand, provide additional context and insights, such as credit history and industry risk. The weighted model assigns a higher weight to core checks, reflecting their greater importance in assessing supplier risk. However, when a core check returns a WARN status, the weight is halved, indicating a potential issue that requires further investigation. This approach ensures that the Assurance Score accurately reflects the supplier's overall risk profile.

Why NA Checks Are Excluded Rather Than Penalised

In Gumshoe's scoring model, NA (Not Applicable) checks are excluded from the calculation rather than being penalised. This approach acknowledges that not all checks are relevant to every supplier, and that a lack of information does not necessarily indicate a higher risk. By excluding NA checks, the Assurance Score focuses on the available data, providing a more accurate assessment of the supplier's risk profile. For example, a supplier may not have a credit history, but this does not mean they are a higher risk. By excluding the credit history check, the Assurance Score concentrates on the available information, such as ABN registration and ASIC company status.

The Five-Dimensional Intelligence Scores

Gumshoe's Intelligence Scores provide a nuanced assessment of supplier risk, catering to different audiences and use cases. The five dimensions are: * Legitimacy Score: assesses the supplier's legitimacy and compliance with regulatory requirements * Solvency Score: evaluates the supplier's financial stability and solvency * Reputation Score: examines the supplier's reputation and industry standing * Industry Risk Score: assesses the supplier's industry-specific risks and challenges * Operational Risk Score: evaluates the supplier's operational risks and potential disruptions Each dimension serves a specific purpose, enabling procurement teams, accountants, and compliance professionals to focus on the aspects most relevant to their role.

Understanding the PASS, WARN, and FAIL Statuses

Each dimension of the Assurance Score is assigned a status of PASS, WARN, or FAIL, depending on the supplier's performance in that area. A PASS indicates that the supplier has met the required standards, while a WARN suggests potential issues that need attention. A FAIL indicates a significant problem that requires immediate action. For example, if a supplier's Credit Risk Score is in the high-risk category, the status will be FAIL. This alerts the procurement team to reassess the supplier's creditworthiness and consider alternative options. On the other hand, a supplier with a low-risk Credit Risk Score will receive a PASS, indicating that they are a reliable partner. The Intelligence Scores are also assigned a status of PASS, WARN, or FAIL, based on the supplier's performance in each dimension. However, the Intelligence Scores also include a fourth status: NA (Not Applicable). This status is assigned when the supplier does not have enough data to evaluate their performance in a particular dimension.

Interpreting the Intelligence Scores

The Intelligence Scores provide a more detailed analysis of the supplier's performance in each dimension. They are calculated based on a range of data points, including financial statements, industry reports, and regulatory filings. The Intelligence Scores are presented on a scale of 0-100, with higher scores indicating better performance. The table below illustrates the Intelligence Scores for a sample supplier:

Sample Supplier Intelligence Scores

Dimension	Score	Status
Credit Risk	80	PASS
Operational Risk	60	WARN
Compliance Risk	40	FAIL
Industry Risk	NA	NA

Using the Assurance Score and Intelligence Scores in Practice

The Assurance Score and Intelligence Scores can be used in a variety of ways to support procurement decisions. For example, procurement teams can use the scores to: * Evaluate the creditworthiness of potential suppliers * Assess the operational risks associated with a particular supplier * Identify potential compliance risks and take steps to mitigate them * Compare the performance of different suppliers and select the best option By using the Assurance Score and Intelligence Scores, procurement teams can make more informed decisions and reduce the risk of supplier failure.

Uncommon Insights

While many practitioners are familiar with the general requirements of ASIC and ATO regulations, there are several lesser-known aspects that can significantly impact a supplier's Assurance Score and Intelligence Scores. For instance, under Section 588G of the Corporations Act 2001, directors can be held personally liable for debts incurred by a company if they fail to prevent the company from incurring those debts while it is insolvent. This highlights the importance of monitoring a supplier's solvency and credit history, as reflected in their Assurance Score. Another critical consideration is the ATO's approach to dealing with phoenix companies. According to the ATO, phoenix activity costs the Australian economy an estimated $3.19 billion annually. As a result, the ATO has implemented measures to detect and prevent phoenix activity, including monitoring for patterns of behavior that may indicate a company is at risk of phoenixing. Gumshoe's Intelligence Scores take into account these patterns and other indicators of potential phoenix activity. ASIC's Regulatory Guide 247 (RG 247) provides guidance on the use of credit ratings and credit scores in assessing the creditworthiness of companies. While RG 247 is primarily aimed at credit providers, it highlights the importance of using robust and reliable credit information when assessing a supplier's creditworthiness. Gumshoe's Assurance Score and Intelligence Scores draw on a range of credit data sources to provide a comprehensive assessment of a supplier's creditworthiness. In 2020, ASIC reported that it had taken enforcement action against 12 companies and 15 individuals for breaches of the Corporations Act, resulting in penalties totaling over $1.3 million. This highlights the importance of ensuring that suppliers are complying with all relevant regulatory requirements, as reflected in their Assurance Score and Intelligence Scores.

Key Takeaways

• Monitor solvency and credit history to assess a supplier's risk of insolvency and potential impact on your business.
• Watch for phoenix activity indicators to minimize the risk of dealing with a company that may be at risk of phoenixing.
• Use robust credit information to ensure a comprehensive assessment of a supplier's creditworthiness.
• Verify regulatory compliance to ensure that suppliers are meeting all relevant regulatory requirements.